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  • Apple: Desperately Seeking Capitulation [View article]
    People believe that after watching Apple out-innovate the competition at every turn for the last 10+ years that they will always be able to do that. Only the future will say whether this belief turns out correct or not.

    The problem is that Apple is only cheap here if you assume no decline in earnings. I personally do not understand why a decline is not a possibility.

    Apple's flagship products are being attacked at every turn by the competition, and unlike in the past, the competition now has alternatives that for the average layperson are at least as good as Apple products themselves. This was not the case in the past at all and could be a valuation game changer, as margins will come way down over time for all players in the industry, including Apple. Only very exciting new products that cannot instantly be copied by the competition can probably offset that decline and make Apple interesting again.
    Mar 7, 2013. 03:36 PM | 2 Likes Like |Link to Comment
  • Apple: Desperately Seeking Capitulation [View article]
    A "cheap" valuation alone should never be a reason to buy and hold stock without setting up stops. No matter how good you are as an analyst, any valuation can be wrong.

    Regardless of what happened in the past, the future can be entirely different. It is totally possible for everybody in the world to have a smartphone and a tablet in the future, but that doesn't mean Apple will keep on printing money with all that competition out there. Just think of how everybody now owns several flatscreen TVs and yet the manufacturers hardly made any profit on them. I'm not equating Apple's situation with the TV manufacturers, I'm just saying that correctly forecasting demand alone does not always mean you will get rich.

    In the tech industry if you want to really print money you must continuously innovate big time; just marginal improvements will not cut it. Apple may be able to do that, but this is an uncertain bet, not a certainty. It would not even be a certainty if Jobs was still alive. I would always employ stops, or some kind of hedge, no matter how cheap anything looks.
    Mar 7, 2013. 10:57 AM | 4 Likes Like |Link to Comment
  • Long-Short Is A Win-Win [View article]
    What strategy you ultimately use is not as important as how well you manage your risk when the trade goes against you.

    A pairs trade can do a lot of damage without some efficient tail hedges. Do you employ any?

    If your primary risk management tool is to get the valuation right, then all I can say is "Good luck".
    Mar 1, 2013. 11:54 AM | Likes Like |Link to Comment
  • PRF: Active Returns With Passive Discipline [View article]
    It Figures,

    the benefits do not get completely wiped out. From inception on Dec 19th, 2005 up to Feb 22nd, 2013, PRF has outperformed SPY (the S&P 500 index ETF) by 140 bp PER YEAR on a total return basis. This total return includes all fees.

    The article just said that PRF lagged its own benchmark by a bit, namely the fees. That is usually a natural occurrence, as a benchmark does not include fees. But the benchmark itself then handily beat the S&P 500, and the fund did too, even after fees.

    In case you wonder, it is actually possible through tracking error for an ETF to exceed its benchmark, even after fees. But that is quite rare.
    Feb 28, 2013. 03:08 PM | 2 Likes Like |Link to Comment
  • Junk Bond ETFs: Adjusting For 'The Great Rotation' [View article]
    Vertical Spread, in my opinion comparing yields is not a good way to measure the attractiveness of different investment vehicles.

    High yield bonds have quite different risk factors than muni bonds (different levels of credit risk, liquidity risk, call risk, duration risk, etc.) and they will behave differently in different market environments.

    Once yields start climbing as the economy recovers, PHB will probably hold up better than a muni bond ETF on a total return basis based on its duration exposure alone.

    However, in a collapsing market muni bonds will most likely outperform high yield bonds.
    Feb 28, 2013. 08:57 AM | Likes Like |Link to Comment
  • New 'Forensic Accounting' ETF [View article]
    This really does not look like an S&P 500 index fund at all. Look at the top 10 stocks for example. And look at the largest weights of the top 10 holdings. This looks more like an equal weighted Wilshire 1000.

    If CLIF is in both portfolios, it could be a marginal holding in both. It could just barely make the cutoff for FLAG and also barely for HDGE (the cutoff rules may be slightly different for both funds).

    No, earnings quality is not everything. Neither is PE or PB or any other valuation methodology. It depends on which one you trust the most and which one best reflects the way you look at the world.

    If there is a fund that follows the strategy you believe in better than FLAG does then you should definitely stay with the other fund.
    Feb 20, 2013. 04:44 PM | Likes Like |Link to Comment
  • Junk Bond ETFs: Adjusting For 'The Great Rotation' [View article]
    I have a question for the author of this article: what exactly do you think causes this fund to have such a higher yield than the standard junk bond ETFs? Even the ishares fund that focuses on the lower tier of credit risk (QLTC) offers a much lower yield than HYLD.

    So what risk does Peritus assume to offer such a higher yield AND lower duration? Interestingly they don't publish a yield to call measure, even though this is a major factor for high yield funds right now. They say they're actively trying to mitigate call risk by swapping into issues trading at a discount to par, but then my question remains: how do you get to such a higher yield? Either you have to pack in a lot more credit risk, or liquidity risk, or duration risk, or some other risk.
    Feb 12, 2013. 02:53 PM | Likes Like |Link to Comment
  • CAPE Crusader: 'Shiller' ETN Worth A Serious Look [View article]
    I would never touch an ETN. You are not being compensated for the embedded credit risk, nor the liquidity risk, and that means they are not worth considering, no matter how much I may like the strategy they follow.

    From the perspective of the issuer they are fantastic though. They set up some simple algorithm to replicate the underlying strategy, and then they are actually being paid to borrow money (the management fee) at very little risk to them. The only thing they may be on the hook for is the tracking error.
    Feb 12, 2013. 02:13 PM | Likes Like |Link to Comment
  • David Einhorn's preferred stock proposal is "creative," Tim Cook states at a Goldman conference. But he calls Einhorn's opposition to Prop. 2 a "silly sideshow," and insists the measure is meant to empower shareholders. He claims Apple's (AAPL -1.2%) management/board are in "very active discussions" about returning additional cash, but remains tight-lipped about details. Apple is spiking lower after temporarily doing the opposite. (live blog) (webcast) (previous[View news story]
    Once management gets involved with financial engineering to accommodate investor demands instead of focusing on pure product development and execution I'd watch out. I'm not sure Jobs would have paid any attention to Einhorn's suggestions.
    Feb 12, 2013. 12:06 PM | 9 Likes Like |Link to Comment
  • How To Become A Millionaire Without Really Trying [View article]
    Usually you don't just get 3 times leverage at almost no cost. Right now you do, but certainly not for the majority of the period this analysis covered.

    How would much, much higher repo rates have influenced this vehicle in the past, particularly the 80s, when interest rates were in the double digits?

    The missing management fee of 0.95 % can easily be incorporated, but the implied repo costs are a lot more difficult, and have an even bigger impact.

    macro investor, I appreciate the analysis though, it was interesting.
    Feb 12, 2013. 12:02 PM | 1 Like Like |Link to Comment
  • An Almost Risk-Free Way For Annual Return Of 50%+ [View article]
    Two methods come to mind:

    In Excel you could generate random walks with a specific drift and double or triple the daily returns (for the 2x and 3x levered funds) over any time horizon you wish.

    Or just look at the last two years and extrapolate certain shorter time frames that exhibited strong serial correlation (like October 2011 to February / March 2012 in stocks), to get an idea of a bad or worst case scenario.

    Your ultimate enemy is strong serial correlation in any direction over a long time frame. And yes, those markets do exist, and they get all the likelier the longer they have not existed in the recent past.
    Dec 15, 2012. 01:29 PM | 1 Like Like |Link to Comment
  • An Almost Risk-Free Way For Annual Return Of 50%+ [View article]
    Relying on the stability of correlations as a primary form of tail risk hedging is not advisable, in my opinion.

    How does the strategy perform if all markets go on a multi-year tear? You will be crying for your Mom in no time.

    To me prudent risk management does not just look back in time to arrive at answers. Ask yourself the simple question instead: "What is the worst that could ever happen and how do I best hedge that?"
    Dec 15, 2012. 08:35 AM | 1 Like Like |Link to Comment
  • President Obama's proposal to extend the middle-class tax cuts before reforming the tax code and entitlements is a "sucker's game," declares Wilbur Ross. There's no trade-off there, it's just the president saying give me what I want, and I'll agree to talk about the rest later. What's being obscured by Washington is that the fiscal cliff issue isn't about taxes and revenue, but that our country is spending way too much. “You can't solve the bulk of the problem with revenues," Ross says. "It’s not going to happen.” [View news story]
    I thought it's more like "let's do what we both agree on" instead of "let's give me what I want", but I can understand that from Wilbur's perspective it's difficult to see reality for what it is.
    Nov 15, 2012. 08:22 PM | 7 Likes Like |Link to Comment
  • The One Stock Portfolio [View article]
    If you only wanted to talk about the Canadian banking sector, why did you wrap it in anecdotes of people who made out like bandits by being absolutely undiversified? Even the headline is misleading then, so whoever picked that headline from Seeking Alpha also didn't quite get what you were going for.

    It really is the worst kind of advice when it comes to investing. I know it makes people all warm and fuzzy to think about nailing it and buying the next MSFT or AAPL with everything they have, but the odds are so overwhelmingly against them that nothing good will come from it for the vast majority.

    Yes, Canadian banks may have done well, but what about almost all U.S. banks or European banks? The total opposite. Now imagine having had all your retirement savings in those. But hey, if you have such foresight to pick the winners I guess one stock portfolios are indeed the right thing for you.
    Nov 6, 2012. 02:27 PM | 3 Likes Like |Link to Comment
  • The One Stock Portfolio [View article]
    It is sad that articles like this are posted here. Obviously some stocks crush the indices. It is just as obvious that even more stocks greatly lag them and it should be known that it is not easy to discern in advance which ones will do good and which ones will do bad.

    Advice like "hey, putting it all in your company stock is worth thinking about" should never be given, regardless whether it sometimes works out well. Sometimes you can do foolish things and not be punished, even get rewarded, but that doesn't mean it wasn't a foolish thing to do.
    Nov 6, 2012. 11:39 AM | 3 Likes Like |Link to Comment